Magic Leap cuts 1K jobs while shifting focus to enterprise AR

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Brief:

Magic Leap is cutting half of its workforce as part of a restructuring that will focus its augmented reality (AR) development on the enterprise market. The job cuts affect 1,000 people as the company drops its consumer business, Bloomberg News reported, citing sources familiar with the plans.

The economic disruption of the COVID-19 pandemic has limited the availability of investment capital, pushing the company to focus on its most promising areas of growth, Magic Leap CEO Rony Abovitz said in a statement posted on the company's website. That focus on the enterprise market fits with its plan to release the Magic Leap 2 headset.

Magic Leap's board is weighing whether to seek more investment funding and is considering a partnership with a big health care company, Bloomberg reported. Magic Leap previously raised more than $2 billion from investors including Alibaba and Alphabet, the parent company of Google.

Insight:

Magic Leap's job cuts are an unfortunate development for a startup that envisioned the possibilities of seamlessly blending computer-generated content with the real world. For mobile marketers, the technology is expected to open up a location-based advertising channel to connect with consumers as they walk past stores, restaurants and other businesses. Until AR headsets become more popular, smartphones will remain the main way to deliver immersive content to consumers.

Magic Leap's focus on the enterprise market is more promising than selling AR headsets to consumers. The company in 2018 introduced its first headset for $2,300, a daunting price that limited the potential market to developers of AR software and content. By focusing on the enterprise market, Magic Leap's strategy will more closely resemble Microsoft's development of its HoloLens 2 headset for applications like training, manufacturing and health care.

Magic Leap's shift in strategy comes as global shipments of AR and virtual reality (VR) headsets are forecast to decline during the first half of the year as the COVID-19 outbreak disrupts supply chains, per International Data Corp. (IDC). Despite the drop during the first half, shipments are forecast to rebound as production ramps up by midyear. Shipments of headsets will end the year with a 24% gain to 7.1 million units from 2019, IDC estimates.